News reports today on the Greek debt crisis are packed with scary terms like “implosion” and “financial doomsday” and “ebola” and “contagion.” The anxiety has ratcheted up considerably this week, and not just for EU heads of state but also for President Obama. He should be worried. As I pointed out in a previous post, “Die Hard — The Welfare State,” the United States awaits its own day of reckoning for the sins of mounting government debt, a bloated public sector and a lack of political will — by both Democrats and Republicans — to come to grips with the problem. The day of reckoning will come. The only question is when. A roundup:

The financial figures are devastating and, even by the most optimistic forecasts, repaying our debt will be extremely hard. The EU and the IMF are willing to lend us money for 2010, but hesitate to make any commitment for the years to come – first because they also have domestic issues and, second, because they fear they may need an additional 450 billion euros for Spain or Portugal. Moreover, Greek politicians have made a very bad impression on them, so they think that even if Greece were to sign an EU-IMF deal, the risks are high. They see no social and political consensus down the road, nor any sign of professionalism or political will among the political elite.

As Greece teetered on the edge of the financial abyss, a cry went up today near Syntagma Square, near the Parliament in central Athens: “Unfreeze our jobs!”. The call was coming not from disgruntled workers, but about 100 angry young middle-class men and women who had missed out on the chance of becoming tax inspectors.

The protesters shouting outside the Finance Ministry had passed the tough exams and signed contracts, but the gold-plated jobs had fallen victim to Greece’s austerity cuts. “They have frozen our lives. We are people with qualifications and many gave up jobs for this. We are going to hell and they are indifferent,” complained Joseph Athanassiadis, 40, one of the disappointed recruits .

Tax inspectors are what Greece needs, said Mr Athanassiadis, a father of two and an engineer by profession. He had a point, given that tax evasion is an Olympic sport in Greece and a source of its woes. Across the sunny street, however, a passer-by bellowed at the demonstrators: “State spongers. Earn your living!”

Ben May, Greek economist at think tank Capital Economics, said: “Their mistake was to go out, borrow money and use it to fund huge wage growth, rather than pay down its already substantial debts.”

Greece went on a spending spree, allowing public sector workers’ wages to nearly double over the last decade, while it continued to fund one of the most generous pension systems in the world. Workers when they come to retire usually receive a pension equating to 92 per cent of their pre-retirement salary. As Greece has one of the fastest ageing populations in Europe, the bill to fund these pensions kept on mounting.

The countries sharing the common currency must now make up their mind. If they mean what they have been saying since February – and think Greece is indeed doing what is needed to bring its debt under control – then they must line up the funds required to carry Greece through its refinancing needs for a protracted period. This means something like the €120bn figure reportedly floated by Dominique Strauss-Kahn, IMF managing director. Nothing less will reassure private investors.

If instead they judge that Greece is not merely illiquid but insolvent and will never be able to repay its debts in full, nothing is gained by postponing the inevitable default. The eurozone and the IMF must then help Greece manage the restructuring process, including by financing reasonable primary deficits – lest default turn into depression – until it regains access to debt markets (this alone would eat up the €45bn they have pledged).

– The tax system has to be changed. The U.S. doesn’t have a system that can fund the government the country wants. The Tax Foundation says the levies paid by the top 1% of taxpayers now exceed those paid by all of those in the bottom 95%. And the Tax Policy Institute says almost half of all filers will pay no 2009 income taxes at all, because of various exclusions and credits—up, by some estimates, from a quarter in 1990.

This may be great for those who like soak-the-rich rhetoric, but it’s no way to finance a country. More than that, it’s a bit of a hoax on middle- and lower-middle-class Americans. They certainly pay payroll taxes, and the more they are excused from the income tax-system, the more likely it is that they will be hit with sneakier and less-progressive taxes. Tax reform—a flatter tax system, a value-added tax, something—is needed.

— Americans have to change how they think about retirement. When the economy recovers and costs for recession-related bailouts, stimulus spending and unemployment benefits are resolved, we’ll still be left unable to really afford our Social Security, Medicare and long-term-care commitments. When the easier stuff is done, this is the hard reality, requiring a new and nonpoliticized national discussion.

Under a cuts-only approach, Social Security recipients would see their cost-of-living adjustments reduced. Medicare premiums would rise, as would the public pension retirement age. The Pentagon would have almost no money for new arms systems or for Afghanistan-scale military operations. All other spending would have to be lowered as a share of GDP. If we simply tax our way out of the problem, Penner said, the total federal tax burden would increase by 50 percent by 2040.

http://www.acton.org John Couretas

A Detroit News editorial reminds us that “Massive public spending and huge deficits are ruining Greece and offer fair warning to the United States.”

… EU president Van Rompuy warned that the bloc risks irrelevance and the end of its expensive welfare programs if it can’t speed up economic growth, forecast to expand by just 1 percent this year.

“With 1 percent growth we can’t finance our social model any more. With 1 percent structural growth we can’t play a role in the world,” he told the World Economic Forum in Brussels. “We need to double the economic growth potential that we now have.”

But others remain skeptical:

Analysts warned, however, that the emergency bailout fund would do nothing to reverse Europe’s soaring public debt — and could even worsen it.

“The last thing you give a drunk is another drink,” said Jeremy Batstone-Carr of Charles Stanley stockbrokers.

“The process of providing a bridging facility for Greece and possibly other indebted nations will add significantly to regional debt and deficit ratios without actually solving the underlying problem.”

America, and many other large economies including the UK, share some of the same problems as Greece with its public finances:

Every country around the world is in a similar position, even the United States; the world’s largest economy has a very large fiscal deficit. And one of the concerns in financial markets is clearly – how will this enormous stock of public debt be reduced over the next few years? And it’s very important that governments, both here and elsewhere, get to grips with this problem, have a clear approach and a very clear and credible approach to reducing the size of those deficits over, in our case, the lifetime of this parliament, in order to convince markets that they should be willing to continue to finance the very large sums of money that will be needed to be raised from financial markets over the next few years, at reasonable interest rates.

On Greece:

I think the lesson from Greece is that, if the problem had been dealt with three months ago, it would not have become as serious as it subsequently became. And I think the important thing now is that Greece has been dealt with a major IMF and European Union package…

But those measures provide only a window of opportunity. They do not affect the total amount of debt, in themselves which countries around the world have to repay. The markets, which some of our European partners like to describe as speculators causing difficulty, are the very same markets where the public sector is looking to provide trillions of pounds of support to finance public debt around the major countries in the world over the next few years.